Loan Growth Slows as Depositors Lock in High Rates
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Austria’s banking sector is facing a significant slowdown in loan growth, with real estate lending even turning negative mid-year. The decline in loan growth is attributed to rising interest rates and decreasing demand for loans from households and companies.
Return on Equity Reaches Highest Level Since 2008
According to recent data, the return on equity (RoE) of Austrian banks reached 15.7% in 2023, the highest level since the global financial crisis in 2008. However, analysts warn that this strong result may be unsustainable in the current economic environment.
Loan Growth Declines
The decline in loan growth was more pronounced for household lending, which contracted due to a lack of demand for residential real estate loans. Corporate lending, on the other hand, continued to grow, albeit at a slower pace than in previous years.
- Household lending contracted due to decreasing demand for residential real estate loans
- Corporate lending grew, but at a slower pace than in previous years
Depositors Take Advantage of High Interest Rates
Depositors are taking advantage of high interest rates to lock in their savings, further reducing demand for loans. The countercyclical capital buffer (CCyB) remains at 0%, as the Financial Market Stability Board recommends maintaining this level given the current economic conditions.
Non-Performing Loans Increase
The Austrian banking sector’s consolidated non-performing loan (NPL) ratio increased to 2.6% in the last quarter of 2023, up from around 2% since 2021. This rise is largely attributed to major bankruptcies in the commercial real estate sector.
Banks’ Capitalization and Leverage Ratio Improve
Despite these challenges, Austria’s largest banks have surpassed their European peers in terms of capitalization, with a common equity tier 1 (CET1) ratio of 16.0%. The Austrian banking sector’s leverage ratio improved to 8.4% at the end of 2023, up from 7.7% in 2022. The CET1 capital of the sector increased by more than EUR 7 billion in 2023, driven by a record profit and an increase in retained earnings.
Conclusion
While the Austrian banking sector has experienced a strong year, the current economic environment presents significant challenges that may impact loan growth and profitability in the coming years.